Haryana issues clarification regarding apportionment of ITC during business reorganization

The Excise and Taxation Commissioner, Haryana vide a Notification dated 29th May 2020 issues clarification in respect of apportionment of input tax credit (ITC) in cases of business reorganization.

This clarification is issued as many representations have been received from various taxpayers seeking clarification in respect of apportionment and transfer of input tax credit (ITC) in the event of merger, demerger, amalgamation or change in the constitution/ownership of business. The issues and clarifications given by the Excise and Taxation Department, Haryana are tabulated below-

SL No.IssueClarification
 1In case of demerger, HGST Rules provides that the input tax credit shall be apportioned in the ratio of the value of assets of the new units specified in the demerger scheme. However, it is not clear as to whether the value of assets of the new units is to be considered at State level or at all-India level.The value of assets of the new units is to be taken at the state level (at the level of distinct person) and not at the all-India level.
 2Is the transferor required to file FORM GST ITC – 02 in all States where it is registered?No, FORM GST ITC-02 to be filed only in those States where both transferor and transferee are registered.
 3Where business reorganization results in partial transfer of business assets along with liabilities, whether the  provisions of demerger shall be applicable to calculate the amount of transferable ITC?Yes, the formula for apportionment of ITC, as prescribed  under proviso to Rule 41(1) of the HGST Rules, shall be applicable for all forms of business re-organization that results in partial transfer of business assets along with liabilities.
 4Whether the ratio of value of assets, shall be applied in respect of each of the heads of input tax credit viz. CGST/ SGST/ IGST/Cess?No, the said formula need not be applied separately in respect of each heads of ITC (CGST/SGST/IGST).
 5How to determine the amount of ITC that is to be transferred to the transferee under each tax head (IGST/CGST/SGST) while filing of FORM GST ITC-02 by the transferor?The total amount of ITC to be transferred to the transferee should not exceed the amount of ITC to be transferred. However, the transferor shall be at liberty to determine the amount to be transferred under each tax head (IGST, CGST,SGST) within this total amount, subject to the ITC balance available.
 6In order to calculate the amount of transferable ITC, the apportionment formula has to be applied to the utilized ITC balance of the transferor. However, it is not clear as to which date shall be relevant to calculate the amount of unutilized ITC balance of transferor.Apportionment formula shall be applied on the ITC balance of the transferor as available in electronic credit ledger on the date of filing of FORM GST ITC – 02 by the transferor.
 Which date shall be relevant to calculate the ratio of value of assets?Appointed date of demerger.

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